[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.652(b)-2]

[Page 99-100]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.652(b)-2  Allocation of income items.

    (a) The amounts specified in Sec. 1.652(a)-1 which are required to 
be included in the gross income of a beneficiary are treated as 
consisting of the same proportion of each class of items entering into 
distributable net income of the trust (as defined in section 643(a)) as 
the total of each class bears to such distributable net income, unless 
the terms of the trust specifically allocate different classes of income 
to different beneficiaries, or unless local law requires such an 
allocation. For example: Assume that under the terms of the governing 
instrument, beneficiary A is to receive currently one-half of the trust 
income and beneficiaries B and C are each to receive currently one-
quarter, and the distributable net income of the trust (after allocation 
of expenses) consists of dividends of $10,000, taxable interest of 
$10,000, and tax-exempt interest of $4,000. A will be deemed to have 
received $5,000 of dividends, $5,000 of taxable interest, and $2,000 of 
tax-exempt interest; B and C will each be deemed to have received $2,500 
of dividends, $2,500 of taxable interest, and $1,000 of tax-exempt 
interest. However, if the terms of the trust specifically allocate 
different classes of income to different beneficiaries, entirely or in 
part, or if local law requires such an allocation, each beneficiary will 
be deemed to have received those items of income specifically allocated 
to him.

[[Page 100]]

    (b) The terms of the trust are considered specifically to allocate 
different classes of income to different beneficiaries only to the 
extent that the allocation is required in the trust instrument, and only 
to the extent that it has an economic effect independent of the income 
tax consequences of the allocation. For example:
    (1) Allocation pursuant to a provision in a trust instrument 
granting the trustee discretion to allocate different classes of income 
to different beneficiaries is not a specific allocation by the terms of 
the trust.
    (2) Allocation pursuant to a provision directing the trustee to pay 
all of one income to A, or $10,000 out of the income to A, and the 
balance of the income to B, but directing the trustee first to allocate 
a specific class of income to A's share (to the extent there is income 
of that class and to the extent it does not exceed A's share) is not a 
specific allocation by the terms of the trust.
    (3) Allocation pursuant to a provision directing the trustee to pay 
half the class of income (whatever it may be) to A, and the balance of 
the income to B, is a specific allocation by the terms of the trust.